REPORT TO COUNCIL
SUBJECT
Title
Action to Authorize the City Manager to Complete Negotiations and Execute an Amendment to the Renewable Energy Purchase and Sale Agreement with Energia Sierra Juarez U.S., LLC, to Purchase Renewable Energy from the Cimarrón Wind Project
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
Promote Sustainability and Environmental Protection
BACKGROUND
The City of Santa Clara’s Electric Department, Silicon Valley Power (SVP), purchases energy to supply residents and businesses within the City of Santa Clara. With the passage of Senate Bill 100 (SB 100), SVP must meet the State of California Renewable Portfolio Standards (RPS) where SVP must procure a specified percentage of its retail sales from renewable energy resources by a particular year.
SB 100 requires local publicly owned electric utilities, like SVP, to procure minimum quantities of electricity products from eligible renewable energy resources: (1) 44% of retail sales by December 31, 2024; (2) 52% of retail sales by December 31, 2027, and (3) 60% of retail sales by December 31, 2030.
To meet this mandate, SVP has diligently sought out renewable energy projects and, over the years, the City Council has approved wind, solar, hydro, and geothermal projects. On June 7th, 2022, the City Council authorized the City Manager to negotiate, approve, and execute a Renewable Energy Purchase and Sale Agreement (Agreement) with Energia Sierra Juarez U.S., LLC (Energia Sierra Juarez), for 300 MWs of renewable energy from the Cimarrón Wind Project located in Baja California, Mexico. In October 2022, the City and Energia Sierra Juarez, finalized and executed this Agreement.
In September 2023, Energia Sierra Juarez notified SVP that delays in the issuance of major permits by Mexican government agencies led to the expiration of their supply and construction agreements resulting in significant cost increases. Based on these cost increases and other issues, Energia Sierra Juarez informed SVP that the Cimarrón Wind Project could no longer be constructed at the current Agreement price. Since then, SVP staff have been working with Energia Sierra Juarez staff to evaluate possible paths forward.
DISCUSSION
In order to move forward with construction of the Cimarrón Wind Project, Energia Sierra Juarez proposed a 37-38% price increase. Energia Sierra Juarez cited many reasons driving the increased costs including delayed Mexican government permitting, inflation, supply chain issues, financing costs from higher interest rates, higher permitting, construction, labor, and operating costs due to stronger Mexican Peso.
To date, Energia Sierra Juarez has received many of the major permits needed to build the project, including 3 major generation permits (generation, export, and import) from the Mexican Federal Energy Regulatory Commission, federal and local environmental impact assessment permits, land use permits, and a U.S. Department of Energy Presidential permit. Energia Sierra Juarez also executed a Large Generator Interconnection Agreement (LGIA) with the California Independent System Operator (CAISO).
Some additional permits are still needed, including some remaining land use permits expected in mid-2024. Energia Sierra Juarez has secured approximately 90% of the necessary rights-of-way for the project with the remaining rights-of-way to be secured by the first quarter of 2024. Energia Sierra Juarez plans to issue a notice to proceed to commence construction by mid-2024 with the expectation that the project will come online in 2026.
Staff have evaluated alternative options for replacing the energy and renewable products from the Cimarrón Wind Project in the event it did not proceed. After it weighed its options, staff believed an amendment to the Agreement was the best way forward even with the price increase. In its evaluation, staff weighed the current projected value of the energy and project attributes, lack of similar alternative projects on the market, and development timeline.
In return for the increase in price, staff is proposing an amendment to the Agreement to include (1) higher levels of development and performance security; (2) forfeiture of development security for failure to meet milestones; (3) stricter project deadlines; and (4) termination and forfeiture of development security in the event of extended force majeure events; and (5) additional termination provisions in favor for the City if the project fails to move forward.
ENVIRONMENTAL REVIEW
The proposed amendment solely deals with contract pricing, early termination, and increased security requirements and does not propose any change to the Cimarrón Wind Project, therefore, there are no substantial changes to the project or new information of substantial importance which will require subsequent or supplemental environmental review under the California Environmental Quality Act (“CEQA”).
FISCAL IMPACT
The previous price was not expected to exceed $68/MWh during the term of the Agreement. The new proposed price increase will increase the not-to-exceed amount to $93/MWh. The additional cost impact of the new price is approximately $20 to $25 million per year compared to the original agreement. The total Agreement price is approximately $93 million a year. This amount varies depending on the amount of forecasted wind, generation, Renewable Energy Certificates, Resource Adequacy, and other related attributes. Funding for the Agreement is included in the resource and production budget in the Electric Utility forecast.
COORDINATION
This report has been coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Authorize City Manager to negotiate, approve, and execute a first amendment to the Renewable Energy Purchase and Sale Agreement with Energia Sierra Juarez U.S., LLC, on the terms presented in an amount of approximately $93 million a year, subject to final review and approval as to form by the City Attorney
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Jovan Grogan, City Manager
ATTACHMENT
1. Renewable Energy Purchase and Sale Agreement with Energia Sierra Juarez U.S., LLC